Sometime soon, a court-appointed referee in Michigan will decide how much Donald Leroy Bren, billionaire, owes Joan Irvine Smith, heiress, for the 11% stake in Irvine Co. that he bought from Smith and her mother in 1983.
Along the way, the referee may shed some light on a more intriguing question: Is Donald Bren the richest person in America?
Like most wealthy individuals, the 57-year-old real estate magnate shrinks from public discussion of his riches. Bren declined to be interviewed for this story, and a spokesman said speculation that Bren may be far richer than previously thought is "not even close to reality" and relies on faulty logic.
Yet the 6 1/2-year legal dispute over Bren's purchase of Irvine Co.--a nonpareil collection of office and industrial buildings, apartment complexes and 64,000 acres of mostly undeveloped land in the heart of Orange County--has brought the question of his wealth into sharp relief.
At its core, the case turns on a simple disagreement.
Bren has argued in court that Irvine Co., his principal asset, was worth just $1 billion in 1983. That value was assigned to the company in a transaction in which the Beverly Hills-born developer bought out a group of wealthy fellow investors that included Herbert Allen, Alfred Taubman, Milton Petrie, Max Fisher and the late Henry Ford II.
Joan Irvine Smith, a holdout in the deal, triggered the court case by demanding an appraisal of the company's assets in Michigan, where Irvine Co. is incorporated. She claimed that the concern was worth at least $3 billion at the time of the buyout.
If Smith prevails when the referee rules, as early as this month, she stands to receive up to $500 million for her 11%, including interest charges, rather than the $88 million plus an unspecified amount of interest that Bren would pay her.
For Bren, such a defeat would be painful. Yet it might also help certify him as a deal-making genius who paid sophisticated investors bottom dollar for a jewel that now appears to be worth far more than its value six years ago--whatever that may have been--thanks to the mid-'80s boom in California real estate.
This is a company big enough to build not just subdivisions but a whole town from scratch--the city of Irvine, with 100,000 people at the center of a booming commercial zone with almost as much office space as downtown Los Angeles. It is the largest private real estate holding in a major U.S. metropolitan area, a holdover from the days of Old California and the vast Spanish land grants.
"Bren is a horizontal Donald Trump," quips Sanford R. Goodkin, a KPMG Peat Marwick real estate consultant who has worked closely with Irvine Co. in the past but had no part in the court case.
More seriously, he adds: "Irvine is the most precious piece of property in Orange County, and one of the most precious in North America. And the increase in its value (through the 1980s) was dramatic, beyond what any appraiser could have foreseen."
Stephen Roulac, managing partner of Deloitte & Touche's Roulac Group real estate unit, who was retained as a witness for Joan Smith at the trial, strongly--if predictably--endorses the notion of a run-up in value. "It could be 6 to 10 (billion dollars) now," he maintains.
Roulac claims that Irvine Co.'s properties today should be valued on a "new paradigm" that takes into account a step-up in mega-deals during the '80s, increased foreign hunger for U.S. real estate and the company's "monopoly" position in a section of Orange County that has remained vigorous in the face of traffic and regulatory bottlenecks that many believed would choke new development. In Roulac's view, many Irvine Co. properties are only now entering the most lucrative phase in their development cycle as Southern California's urban sprawl closes in on them.
If that logic is correct, Bren, who owns 92% of Irvine Co.'s shares, might be within striking distance of John Kluge, the media giant who topped Forbes magazine's annual "rich list" last year with an estimated net worth of $5.2 billion.
Forbes estimated Bren's fortune--including interest in a pair of high-rise office buildings in West Los Angeles and the Newport Beach-based Donald Bren Co. home-building company--to be "at least $1.85 billion." That put him at No. 16 on the list, a mere $50 million behind the magazine's richest Californian, computer entrepreneur David Packard. Sources familiar with Irvine Co. have said the Forbes estimate tracks closely with an internal evaluation that the company conducts annually for its banks and small group of shareholders, which includes a handful of individuals who never agreed to sell their tiny stakes to Bren.